In early 2008, the label was aggressively downsized and it remains to be seen what Citigroup plans to do with the iconic record label. They said this:

This is a positive development for EMI, its employees, artists, songwriters and suppliers. Our objective is to have EMI perform its absolute best for our shareholders over time. EMI is an iconic business and we are completely supportive of both its management and its strategy. It is business as usual for everyone at EMI,

The Wall Street Journal notes that there are many potential suitors for the major label, from other private equity firms to other labels.

This. If PE shops bid on it, they'll all probably come up with similar valuations for the royalty revenues. It's a question of how much you can underwrite the success of the label going forward that'll determine who actually wins it. I hope whoever buys it learns from Guy Hands' mistake and doesn't put as much debt on it.

I'll admit that I don't know much about high finance, but this almost seems like the mob to me. You borrower 20 grand from Big Alessio, miss a payment or two, and before you know it, four enforces show up at your door to inform you that they'll "take care of things from now on."

Well, that's pretty much what happens. Terra Firma borrowed a bunch of money from Citi to buy EMI. EMI couldn't pay the interest on the debt, so it defaulted. At that point there are a number of different roads you can travel down depending on the business and its financial situation (restructuring, liquidation, etc.). I'd imagine the value of the company declined to a point where Terra Firma's equity (i.e. the "stock" they owned) was worth nothing, which means that Citi, having lent the money, now owns the company. The simplest way to think about it is the company's ability to earn money was the collateral for the loan, so when the company defaulted, Terra Firma had to give Citi (the lender) the company.